Liberata gets rescue funds

One of the world's largest private equity firms has been forced to inject
extra capital into Liberata, who was last month sacked by the Government
over the student grants fiasco.

By Ben Harrington

10:56PM GMT 29 Nov 2008

US investment firm General Atlantic Partners has recently had to put a total of £21m into Liberata, which works for more than 20 local councils and some of the largest departments in Whitehall.

General Atlantic's cash injection comes as the company – which describes itself as the second largest business process outsourcing (BPO) provider to local government – was widely criticised for its handling of the Education Maintenance Allowance (EMA) scheme.

Last month, the firm was fired by the Government after the delay of thousands of payments to sixth-formers who rely on the EMA scheme to fund their studies.

Under the EMA, 16 to 18-year-olds from the poorest backgrounds receive £30 a week to remain in school, sixth-form and college courses.

The delay in payments forced several students to quit courses altogether and one college was forced to hand out Tesco supermarket vouchers to "tide over" the poorest students.

Shortly after Liberata lost the six-year EMA deal, worth £80m, a former company executive told the BBC's Newsnight programme that the company knew a year ago that it would be unable to fulfil the contract.

The business was also dealt another blow when it lost a £200m service contract with Sheffield City Council.

People close to the company said boutique advisory firm Gleacher Shacklock has been appointed to carry out a strategic review of the company after it received several unsolicited approaches. Some industry sources, however, are sceptical that the business will be sold imminently as they believe it may be in financial trouble.

At the end of the summer, General Atlantic put an extra £11m into the company.

A few weeks ago, the investment firm injected another £10m into Liberata, triggering City speculation that problems are escalating.

Gleacher Shacklock has twice sent out an information memorandum on the business to advisers and potential bidders.

The adviser sent a book on the company to buyers earlier in the year and it recently distributed another sales document after General Atlantic put in its latest slug of cash into the business.

One source speculated potential bidders, such as Capita, could wait to see whether Liberata falls into administration before attempting to acquire the company.

However, sources close to the company argued that General Atlantic had decided to inject the capital because it is a "long-term investor" in the business.

General Atlantic invested £160m in Liberata, formerly a division of Deloitte and Touche, in 2002. Since then, the firm is thought to have provided more capital to the company.

If the company is sold, it is not clear whether the private equity firm will make a profit from its investment.

Earlier this year, Liberata – which is believed to be still profitable – sold its financial services division to Indian IT group HCL Technologies.

Shortly afterwards, Robert Gogel, the company's chief executive, resigned and was replaced by Richard Webster, who joined the company in 2007 as chief financial officer.